WE ARE trying to put on airs as if we do not need anyone. However, secretly we also want Trump to win the election. It’s not that we see him as a force for good – that would be naïve – but we think that Trump won’t bother us at least as much as Biden. We spent four years together; we somehow know him.
In fact, the U.S. has a foreign policy, especially for the Middle East, and it does not show significant changes from president to president, from party to party. The details make the difference. Economic policies may be more affected by the changes in president; we have seen this with Trump. But what is interesting is that we link our economic policy or some decisions we will take within that framework, to whether the presidential seat will change in the U.S.
If Trump continues to occupy that seat, we will have a sigh of relief, but if the new coouant is Biden, we will obviously have to take new steps.
It seems clear on which subject these new steps will take place. In order to prevent further depreciation of the TRY, we will need to do it quickly.
As they could not stop the fluctuation in currency…
After the Central Bank did not change the policy rate at the Monetary Policy Committee meeting on October 22 and instead increased the interest rate of the late liquidity window to 14.75 %, it was obvious that the average funding cost would move towards this level.
I guess what they thought was this: “We raised the ceiling interest rate to 14.75%, that is, we raised the interest significantly. The need to lean on foreign exchange is no longer meaningful, so the rate increase will stop”. Or they just hoped that the market would read this decision as such. I think they underestimate the intelligence of the market. The market saw the Central Bank’s bluff, and the currency has begun to rise, burying even the targets of the new economic program announced just a month ago.
Then we gave ourselves some hope, we managed to build public opinion, albeit only to some extent: What if Trump wins the election in the U.S. instead of Biden, as if all relations have progressed smoothly in the four years under Trump’s presidency, as if the TRY did not lose value in this period. We are in a mood now to accept the lesser of two evils. When Biden emerged as the alternative, we adopted this approach.
There was still no official result for the U.S. elections at the end of last week. It seems that this election will end in the courts. Biden’s lead in the race has demoralized us once again. So the rapid decline in the currency on Tuesday had nothing to do with the U.S. elections. It seems that the temporary decline stemmed from the rumor that the Central Bank would move to massively increase interest rates.
Will there be an increase in rates before November 19?
The next meeting of the Monetary Policy Committee is on 19 November. The average funding cost, the actual interest, increased to 13.94 percent on November 3. There was only 0.81 point difference with the ceiling interest rate. The average cost of funding was 13.45 percent on November 2, the next day, it increased by almost half a point, as we have just mentioned, it increased to 13.94 percent. Even with much lower paced increases on a daily basis, it seems that the ceiling of 14.75 percent will be reached before November 19. So, what will happen in that case? The Central Bank will either protect this interest until November 19 and provide as much funds as the late liquidity window demands at the 14.75 percent interest to every bank that requests it or, if the exchange rate is increasing even more despite this interest, it will hold an extraordinary meeting and raise the rate.
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